American Home Shield 2009 Annual Report Download - page 32

Table of Contents
Represents other than temporary declines in the value of certain investments in the American Home Shield investment
portfolio.
Represents investment income (loss) resulting from a change in the market value of investments within an employee
deferred compensation trust (for which there is a corresponding and offsetting change in compensation expense within
income (loss) from continuing operations before income taxes).
Represents a portion of the earnings generated by SMAC, our financing subsidiary exclusively dedicated to providing
financing to our franchisees and retail customers of our operating units, and interest income on other cash balances.
(2)
(3)
(4)
The effective tax rate on income (loss) from continuing operations was a benefit of 43.0 percent for the year ended December 31, 2009 compared to a
benefit of 23.9 percent for the year ended December 31, 2008. The effective tax rate for the year ended December 31, 2009 includes a reduction to income tax
expense resulting from a change in the state tax rates used to measure state deferred taxes which more than offset state and Federal tax expense. The effective
tax rate for the year ended December 31, 2008 includes a reduction in income tax benefit resulting from the establishment of a valuation allowance related to
certain deferred tax assets for which the realization in future years is not more likely than not, unfavorable adjustments to liabilities related to federal and state
uncertain tax positions related to prior years, and state tax expense.
Restructuring and Merger Related Charges
Concurrent with the completion of the Merger, the Company engaged in a reorganization and restructuring of certain of its businesses and support
functions known as Fast Forward. Among the purposes of Fast Forward was to eliminate layers and bureaucracy and simplify work processes in order to
better align the Company's work processes around its operational and strategic objectives. Fast Forward involved, among other things, a reduction in work
force and various process improvements, including the closing of American Home Shield's call center located in Santa Rosa, California, the organization of
certain corporate support functions into centers of excellence which are expected to deliver higher quality services to our business units at lower costs, the
outsourcing to third party vendors of certain business activities that were previously handled internally, as well as other employee workforce reductions
expected to result in cost-savings. The initiatives referred to as Fast Forward are substantially complete, and the Company has achieved its previously
forecasted savings of $60 million pre-tax on an annualized basis. Most of these savings benefit the selling and administrative expenses line in the
Consolidated Statement of Operations. Going forward, the Company will continue to evaluate its work processes and from time to time may make further
changes to them in order to achieve operational efficiencies.
As part of Fast Forward, on December 11, 2008, the Company entered into an agreement with International Business Machines Corporation ("IBM")
pursuant to which IBM will provide information technology operations and applications development services to the Company. The initial term of the
agreement is seven years. The agreement commenced on December 11, 2008, and the services were phased in during the first half of 2009. In connection with
the agreement, the Company eliminated approximately 275 positions. As a result of the elimination of positions and the transition of information technology
services to IBM, the Company incurred charges related to, among other things, employee retention and severance costs, transition fees paid to IBM and other
consulting fees. Almost all charges related to the agreement were cash charges and were expensed throughout the transition period. Such charges amounted to
$9.9 million and $3.5 million, pre-tax, during 2009 and 2008, respectively. These charges were recorded as restructuring charges in the Consolidated
Statements of Operations as incurred.
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